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Gen-X Heard From
How do they profit from the boom?
by Ann Coleman
(TMF [email protected])
Reston, VA (March 29, 1999) -- I had a number of very nice responses to last Friday's column, on the baby boom's impact on the market. Most of them were telling me that I should really read the work of Harry S. Dent, The Roaring 2000s: How to Achieve Personal and Financial Success in the Greatest Boom in History.
I have to confess something. I've seen this book numerous times and passed it by because the title sounded just like all the other prognosticators and gurus who are trying to make a buck via a magic market crystal ball. What's that about judging a book by its cover? Oh, yes -- don't. I still haven't read it, but I received enough comments from Fools who have read it to deem it worthy of passing along. And I will read it.
I also received an interesting note from self-described Gen-Xer, David Nierengarten, who is even optimistic about what will happen when the baby boomers start taking money out of the market to live on. He wrote:
I don't think the markets will crash, and here's why: Fundamentally, the boomers are greedy (not just them, everyone for that matter), so they're going to keep most of their money in stocks and just skim some off the top each year. Additionally, the boomers all assume they're going to be young forever (this includes not dying), so they'll want to keep most of their money in higher returning investments as they age, again assuming they're going to need it when they live to be 150.
Now, I suppose I could take umbrage with his characterization, if I could stop laughing, but actually, I think he's right on the mark. I would add that another good reason not to take money out of the market in great gobs would be the hope of it continuing to grow so that one can pass more along to the next generation (after spending quite a bit first, of course). Between greed and altruism, I think that a long period of underperformance is far from inevitable when we start to retire. We can at least hope for a soft landing. With a little luck, the market will revert gently to something closer to historical trends.
Still, what does this say to those who are coming along behind the boom, the baby busters and the boomlets? The message is clear -- start investing NOW! Don't wait like your parents did, or you may find yourself in the same position as those who bought big houses in the late '80s as an "investment" expecting the value to go up 10% a year.
Congress just gave young investors the greatest gift imaginable: The Roth IRA. Let's assume that there is something to this demographic stuff and that the market continues to grow for the next ten years at the same average annualized rate that the Standard & Poor's 500 Index has grown over the last 5 years, namely 24%. Let's also assume that after 10 years it reverts to the historical norm of 11%. If you can put just $167 a month into a market-matching Roth IRA and keep up the contributions for just 10 years (total contributed = $20,000), you can retire in 35 years with well over a million dollars tax free.
But what happens if you wait 10 years to start? Start saving in the year 2010 and keep it up for 25 years (total contributed = $50,000) and you end up with a lousy $253,000. Not only are you losing because you are not invested for as long, but you have waited until the good times have passed and are stuck with lower average returns. Double whammy.
I know only too well just how hard it can be to save when you are starting out. The surprise is that it doesn't necessarily get easier as you make more money. That is why the only answer is that old bit of conventional wisdom "pay yourself first." Take that $167 a month right off the top, like it's something as essential as taxes or health care. And isn't it?
Fool on and prosper!
Today's Stock Lists | 1999 Dow Returns
03/29/99
Close
Stock Change Last -------------------- CAT + 7/16 47.25 JPM +2 15/16 125.81 MMM +1 71.31 IP - 1/16 44.19 |
Day Month Year History
FOOL-4 +1.17% 4.38% 5.44% 7.00%
DJIA +1.88% 7.52% 9.38% 8.94%
S&P 500 +2.13% 5.80% 6.90% 7.16%
NASDAQ +3.05% 8.95% 13.69% 15.25%
Rec'd # Security In At Now Change
12/24/98 9 JP Morgan 105.51 125.81 19.24%
12/24/98 24 Caterpillar 43.08 47.25 9.68%
12/24/98 22 Int'l Paper 43.55 44.19 1.46%
12/24/98 14 3M 73.57 71.31 -3.07%
Rec'd # Security In At Value Change
12/24/98 9 JP Morgan 949.62 1132.31 $182.69
12/24/98 24 Caterpillar 1034.00 1134.00 $100.00
12/24/98 22 Int'l Paper 958.12 972.13 $14.01
12/24/98 14 3M 1030.00 998.38 -$31.63
Dividends Received $15.04
Cash $28.26
TOTAL $4280.11
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